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The $65 billion hole in the online advertising business

Online publishers and ad networks are struggling to come up with ad formats that increase the effectiveness — and price — of advertising online. But there's a possibility that analog ad dollars turn into digital dimes because advertisers are getting better value elsewhere.

According to Outsell Inc., a media research and advisory company, marketers will spend $66 billion on TV advertising and $42 billion on newspaper advertising this year.

But they're also going to spend another $65 billion on their brands outside of traditional advertising. And online publishers won't be seeing any of that money. It will be spent on other places — like companies' own websites, search engine optimization and social media.

"To scale that, compare the total U.S. TV and cable advertising revenue
for 2009, which is about $66 billion. The marketing dollars companies
now spend on their own sites is equivalent to all TV ad revenue for the
year. Eight years ago we said that the Global 2000 would be the
dot-coms of tomorrow. That's what's playing out."

Steve Ballmer, Microsoft's CEO, has said that the prices for advertisng have "reset." He told a crowd of advertisers at Cannes last month: "A recession implies recovery [to pre-recession levels] and for
planning purposes I don't think we will. We have reset and won't
rebound and re-grow."

Stratigos agrees:

"Advertising which has left the news industries is not going to come back in its same shape or form."

But she sees a big problem in the distribution of free online content:

"Offering content for free creates a commoditization effect, putting
downward pressure on the sector. I don't know any industry that has
survived on being free."

However, it's not all doom and gloom from Outsell. Stratigos argues that "You can
still make a case for cross-media buys and the combination of display
ads plus search optimization as being effective." That's good for brands, but bad for publishers.

Better tracking and optimization will help marketers get their message across — perhaps for less monetary outlay. If advertising rates online do not come close to their former analog
rates, publishers are going to start drastically changing their business models
in efforts to survive.

In the meantime, online publishers are working harder to grow their ad revenue. And while new formats and placements may not reach the revenue levels that traditional advertising once earned, they certainly can't hurt while publications figure out their new business models online.

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